Capital First Ltd


(R.Jain) #41

Be careful in financials with tendency for aggressive accounting (especially ones which lengthen the NPA recognition cycle). Punit has noted a few instances.

In a leveraged undertaking, aggression in lending coupled with “liberal” accounting can make for a disaster in the wrong credit cycle (luckily we are now in a good credit cycle). Banks and NBFCs can compound optically for a long time until one fine season when they fall 90%. Unless one is confident about the book quality, it would be unwise to make a significant bet or sleep on the “investment” with such characteristics (red/orange flags). If you are in it, be constantly vigilant. When you see smoke, cut the position size.


(Aveek Mitra) #42

I think, one point I missed earlier is the “key man risk” in CAPF. I assume Warburg / HDFC Standard have adequately taken care of this risk as most of their shares are in lock-in period for 1 - 3 years.


(Raj Panda) #43

Also found this note from SCUF mgmt. interview (by valupickr team) interesting in this context.

“Success in MSME financing business is pretty simple, actually. It’s a plain vanilla labour-intensive game. There are 1000’s of middle level executives involved. It is their persistence and sweat. It will be wrong to say there is a big “classy” process behind this. It is the labour and the humility to relentlessly chase for collections. There is a process for sure, but that process is in building people (like a factory) - who can stay true to persistence and sweat and humility to chase - each situation is different! 80% of our success can be attributed to this patience and diligence at the branch level and only 20% to Intellect-driven systems/processes.”

and capital first has reduced employee strength from 1200 to 1089 this year.


(S Khan) #44

They have closed their retail and commodity brokerage businesses in December 2013 , Reduction in employee strength is most likely because of that.


(saurabh arora) #45

Would below be considered aggresive or average comparing to market? Would below protect NPA’s in bad phase?

  • Mortgage loans to SMEs -> The Loantovalue(LTV) offered to customers is in the range of 50%-60%.

  • Gold Loans -> TheLoantoValue is 75% on the value of the jewelley

  • Consumer durables -> the average Loan to Value ratio is ~70%

  • Process -> 29 - 30% of net disbursals out of total applications.

Source - corporate presentation


(Excel Monkey) #46

One can give 70% of value of a consumer durable goods as loan but the actual reliazable value if CF has to repossess and sell would be probably as low as 10 - 20%

Be careful in financials with tendency for aggressive accounting (especially ones which lengthen the NPA recognition cycle). Punit has noted a few instances.

In a leveraged undertaking, aggression in lending coupled with “liberal” accounting can make for a disaster in the wrong credit cycle (luckily we are now in a good credit cycle). Banks and NBFCs can compound optically for a long time until one fine season when they fall 90%. Unless one is confident about the book quality, it would be unwise to make a significant bet or sleep on the “investment” with such characteristics (red/orange flags). If you are in it, be constantly vigilant. When you see smoke, cut the position size.


(R.Jain) #47

The LTVs are on the higher side.

  1. Gold Loan at 75% LTV compares to around 60% for SCUF & Muthoot, so it’s aggressive.Secondly, the ‘V’ attributed to jewelry needs to be adjusted down for wastage and making charges to be safe. Otherwise true LTV here is probably at 85-90%, which is high. A 10-20% fall in gold prices would make the loans suspect.

  2. Mortgage loans to SME or LAP. Again the LTVs at 50-60% are higher than more conservative peers like Bajaj Finance (40-45% LTV). This is the segment that deserves the most attention as it is 2/3rd of the book (gold loans and consumer durables are ~10% of the book as I recall). The LTVs by themselves mean little though. They are only the second line of defense. It is the SME cash flow that counts. Are they really lending based on cash flows as they say in the presentation ? One needs to visit a branch or ask their customers or competitors to find this out.

To give you an example,the asset quality in home loans for Gruh is exceptional in part because it is essentially cash flow driven rather than LTV driven. The loan installment is capped at 1/3rd of income by design so 60% LTV is very fine there. It would be interesting to find out the installment to income ratio for the LAP done by CF.

Be careful in financials with tendency for aggressive accounting (especially ones which lengthen the NPA recognition cycle). Punit has noted a few instances.

In a leveraged undertaking, aggression in lending coupled with “liberal” accounting can make for a disaster in the wrong credit cycle (luckily we are now in a good credit cycle). Banks and NBFCs can compound optically for a long time until one fine season when they fall 90%. Unless one is confident about the book quality, it would be unwise to make a significant bet or sleep on the “investment” with such characteristics (red/orange flags). If you are in it, be constantly vigilant. When you see smoke, cut the position size.


(Nikhil Jain) #48

[ Comment too short ]


(Nikhil Jain) #49

During the AGM on 18th June, Mr. V was granted 65,00,000 shares at 207 each under CMD scheme. This resolution was passed with nearly 100% votes in favor. Does this signify the full faith of promoters and other shareholders, Mr. V enjoy? Or is this tiny detail insignificant

Disc :-

invested


(saurabh arora) #50

Thanks R Jain for clarification.

Now thinking about value proposition, I understand its commodity business but what does this company brings to table differently than nearest competitor or in other words, why will customer chose them if have choices available?

Just thinking that SCUF has trust of customers available; bajaj fin is ingrained into bajaj dealerships, so what wil be decisions which would come into minds of customer? Now one thing can be they are offering more loans for same asset, which may be benficial to customer in need but add more risk to dimension as explained above. I am new to investing so not sure if I am thinking on right terms here…

Disc: Not invested…


(Santosh Sinha) #51

Hi,

Q1 results are out, PAT up 280%, seems turnaround is on track, may end fy15 with eps of 14 and BV of 180.

Comments Pls !

Best


(Nikhil Jain) #52

-Consolidated net profit at Rs 20.8 crore versus Rs 5.5 crore (YoY)

-Consolidated total income at Rs 327 crore versus Rs 242.6 crore (YoY)

Capital First says

-Overseas unit Anchor Investment and Trading to discontinue services, has started winding up process

-Board approves merger of Capital First Investment Advisory and Capital First Home Finance

Growth seems definitely on the track. More importantly, p/e has come down to 25 from 39 levels. More improvement in p/e is most likely next quarter, since sept. 2013 had a -ve eps.

would appreciate some inputs from seniors after the quarterly results.

Disc :- Invested


(Aveek Mitra) #53

The asset growth seems to be good. Provision also increased.

There is a reduction of Balance Sheet size by Rs. 375 Cr. as borrowing reduced and more of own fund deployed. NIM increased from 4.2% to 4.8%.

However average cost of borrowing seems to have increased from 8.23% to 9.46% (very rough estimate).

AUM increased by Rs. 1000 Cr. but on books it seems about Rs. 863 Cr.

I find there investor update has more words and growth graphs than quality substance as compared to SCUF. It is something I didn’t like.

Disc.: Tracking and have very small holding (less than 0.5% of portfolio).


(Punit) #54

Beyond the headline numbers, i feel that the PAT is quite skewed this quarter as it includes

1). Realised FX Translation reserves of 4cr

2). Interest on Income tax refund of 2.38 cr

3). PAT attributed to Anchor Investments and Trading of 4 cr.

4). The firm deployed 178cr raised through equity offering in this quarter which naturally did not incur any cost of borrowing

Red Flags:

1). The company issued 65 lacs of stock options under the new CMD option scheme of 2014. Not sure if this is additional to the already reserved ESOP.

2). The company seems to have incorporated some of the above income into “Income from operations” which i think is window-dressing the books.

P/BV has come down due to the new equity raised.

Disc: Not invested and no plans to invest


(Aveek Mitra) #55

I think the opportunistic part of the investment played beyond my expectation!!

It seems running on some speculative buying and probably on the Warburg pedigree…

Also, the people inside are smart and can surely play the game well…

I absolutely find no apparent reason for this “steroid driven” sprint!!!

Disc.: Invested at the time of writing in VP. Part exited today.


(Santosh Sinha) #56

Its a well capitalised business, NII growth of 55% yoy, 9 % qoq, where one would get such growth, Its a deep cyclical NBFC business/stock, huge opportunity size.RBI rate cut in next 12 months could be the reall trigger for all NBFCs. Wish to hold for full cycle, i.e atleast next 3-5 years.

The other three Warbus businesses were, Kotak Mahindra, Bharti & Havells.CAPF has a long way to go to feature in atleast top 5 NBFC in AUM

Disc : Invested

Views : Could be Biased


(Santosh Sinha) #57

Board approved capital raising of 300 Cr, CEO said most likely thru QIP, will closeby Nov/Dec 14,wud be good news as it wud be at premium to BV, will help further inc the BV in fy 15, which could be now close to 180 in fy 15, stock still looks cheap compared to FY 16 BV of 210/220.

This is the diff bet private & PSUs management, Can fin shud have also gone for QIP rather than rights issue that too with lots of uncertainty in timings.

disc : invested in both

views :biased


(Piyush) #58

Capital First announced a sharp rise in consolidated net profit for the quarter ended September 2014. During the quarter, the profit of the company rose 3.78 times to Rs 270.50 million from Rs 71.62 million in the same quarter previous year.

Net sales for the quarter rose 33.35% to Rs 3,475.82 million, compared with Rs 2,607 million for the prior year period.

Earnings per share for the quarter stood at Rs 3.21, registering 3.21 times growth over previous year period.

Disc: Invested


(Santosh Sinha) #59

As expected Bumper Q2 results

NII inc of 58 % yoy, 13 % qoq

PBT & PAT up 280 % yoy and 30 % qoq

Net NPA 0.01%, one of the best in NBFC

This is turning out to be fasted growing NBFC now with a very capable management.

Actually best play on cyclcial, turnaround and growth stock. Quality of growth is excellent.

Expected BV fy 15 170, fy 16 220, IMHO it desrves 3 time P/B, can head towards 700 in next 1 yr. with rate cycle probably turning from Feb RBI Policy, these high beta cyclical NBFC can really outperform the mkt and other financials. Capital adequacy is 21 %, Co will be raising 300 Cr thru QIP, at a huge premium to BV, will further raise CAR and BV.on P/B it is still quite cheap !

Disc : Invested for next 3 yrs.

Corp presentation on Q2 is attached for further details


(Santosh Sinha) #60

Size is big, here is the link

http://www.capfirst.com/investor/financial-info